Friday, March 5, 2010

Update

Hey kids, just to let you know, I am swamped with "real work" for the foreseeable future. (I'm even busier than this guy.) Also, if it works out, I will be migrating the blog to Wordpress during my hiatus.

For anyone in the area, I am giving a talk at the Denver Petroleum Club on Thursday morning (will they be expecting a troll?), and then it's off to Auburn for the Austrian Scholars Conference [.pdf]. My intelligence sources indicate that there is a new karaoke bar in Auburn, which features karaoke every night of the week.

Rather than send a personal email, I'll ask this here and see if it works.

Bob - what are your thoughts on Peak Oil (and the arguments that cheap oil -- not capitalism -- is the fundamental cause of American prosperity) and the resulting implications for Austrian Economics? I think the two are reconcilable, with a little nuance. I find Kunstler's (www.kunstler.com) and Greer's (thearchdruidreport.blogspot.com) arguments quite compelling, which is surprising to me, having been an Austro-Libertarian since around my 12th birthday.

A very quick response would be, sure, having lots of cheap oil is a good thing, but you still need an economic system capable of extracting and utilizing this resource in an efficient manner (leaving aside the precise defintion of "efficient"), in short, capitalism. Put another way, why exactly is oil a cheap resource rather than some sludge sitting around that serves no human need? A final point, which is going to be prosperous, a capitalist US with access to cheap oil, or a socialist US with access to cheap oil?

Clearly, a capitalist system with finite oil resources is superior to a socialist system with finite oil reserves. That isn't the argument or the question. The questions in my mind are, to name a couple:

1. Has the modern industrial economy been built on too strong of an assumption of steady and long-term oil supplies? Has it so embedded this assumption into its infrastructure that a collapse is unavoidable?

2. Does the modern industrial (capitalist) economy value effiency and short-term profit over stability and sustainability (not environmental sustainability, but economic sustainability)?

First, regarding my second question, my point is that efficiency & high ROE are on one end of a continuum and stability and sustainability are on the other. Any economy is going to have firms all over that continuum. But, in general, are we too far on the efficiency side?

Second, Kunstler call suburbia the "greatest misallocation of resources in the history of mankind". It is dead without cheap oil. I acknowledge that our economy is far from a free market, with artificially low interest rates, tax incentives, etc. encouraging suburban living. But, would a similar setup arisen under a truly austrian framework? The issue is that something that seemed to make a lot of sense over a 50-100 year horizon sucked up a ton of resources and created an infrastructure that is ill-equipped to support the upcoming necessary transition.

"Since the beginning of the current series of Archdruid Report posts on economics, I’ve wondered in an idle sort of way if it might come to the attention of a professional economist or two. Last week’s post, though, seems to have settled that issue. I deliberately begged a question in that post, one that cuts to the core of conventional economic theory, and it would have taken a degree of self-control exceedingly rare in any profession for a mainstream economist to read the discussion and not rise to the bait."

"Clearly, a capitalist system with finite oil resources is superior to a socialist system with finite oil reserves. That isn't the argument or the question."

It seemed from your original query that it was, but whatever. Bottom line is, and I have never received a straight answer from the Peak Oil theorists (I take no position one way or another on their primary claim that the rate of oil production has taken a more-or-less permanent negative trend), why should the normal functioning of the price system not apply to oil, as it does for any other commodity (ie, throught adjustments on both the supply and demand side in the face of rising prices)? Put another way, I am utterly unconvinced that oil is in any way special, and the Peak Oil theorists do not provide convincing arguments that it is.

Just a quick perusal of the druid's web site reveals what's wrong with so much of the debate over Peak Oil economics: a host of metaphors and analogies do not constitute real argument, and this guy clearly does not understand what money is. Maybe he has insights to offer, but he strikes me (on economics at least) as a crank.